According to one recent study, one-third of all Americans went over budget with their holiday spending. If you count yourself among that crowd, it’s time to start hammering away at that debt.
The best way to attack credit card debt is what’s commonly called the “avalanche method.” You target the card with the highest interest rate first, then work your way down from there. This method will save you money on interest.
Here are some simple ways to get started on paying down your holiday debt.
The first step to reducing debt is finding “extra” money to send its way.
You’ve likely heard of a balance transfer, which is when you move debt from one (or several) credit cards to another card with a lower interest rate (like our Power Card). Your credit score comes into play here. The highest scores will help you qualify for cards with very low or 0% APR. Remember, though, the super-low rate will end after a certain period, usually 12 to 18 months. Also, when you get a balance transfer card, it’s wise to only use it for what was intended. That means avoiding new purchases. Tuck the card in a drawer or a safe to help avoid the temptation to use it.
Home Equity Loans
This is a fixed-rate loan, where you take out money and then begin paying it back immediately. This can be a good option for people with a large chunk of equity in their homes. Visit our Home Equity Loan page to learn more about this option.
Home Equity Line of Credit (HELOC)
This is a variable-rate loan that’s often tied to the prime interest rate. Because of that tie-in, if interest rates rise, so will monthly payments. One thing people like about taking out a HELOC is that the funds can be withdrawn as needed, instead of being required to take all the money at once. Typically, you pay back the money you take out, and are only charged interest on the funds you use. Click here to learn more about Fortera’s meLOC, our new home equity line.
Understand the Risks
Before consolidating – especially if you are rolling credit card debt into any type of home equity loan — remember you are essentially taking unsecured debt and turning it into a secure debt. That means if you default – you are unable to make your payments – the lender can take the asset associated with the loan, which, in this case, would be your home.
Original article by Chris O'Shea and adapted in partnership with SavvyMoney.